HMRC Increase Interest Rates on Late Payments

HMRC Increase Interest Rates on Late Payments

The 2024 Autumn Budget announced that from 6^th April 2025, HMRC will raise interest charges on late paid tax.

There were no changes made in the recent Spring Statement in respect of interest.

Interest Rates Explained

Interest on overdue tax has for many years have been set at a fixed amount over the Bank of England base rate. The uplift is at 2.5%. From 6^th April 2025 this increment will rise to 4.5%. This will mean that interest on overdue tax will accrue at 8.5% from 6 April 2025.

The interest rate on tax repayments will remain at 1% below the base rate.

What Does This Mean?

The rise of late payment interest to 8.5% means that individuals who are eventually found to have unpaid tax liabilities will incur higher charges.

For example, if a tax liability of £10,000 eventually becomes due, the interest rate after 6 April will equate to £70 a month. This is in addition to any interest already accrued.

When Is Tax Due?

Tax generally falls due at the end of January following the end of a tax year. So a liability for 2019/20 falls due 31 January 2021.

This is a date fixed by legislation and HMRC will always claim that they are unable to depart from this date even where it is the case that they have been very slow to advance enquiries or react to information provided.

There are some instances in which a Tribunal has intervened to reduce interest charges, but these usually involve quite extreme circumstances, and they are certainly not precedent for a general reduction.

Mitigating Interest Charges

Short of a change of law, which does not seem imminent, the only way to mitigate potential interest charges is to make a payment on account to HMRC. Making such a payment is not an “admission of guilt” but simply the reaction of a prudent person to an increased risk.

HMRC claims to have the power to retain payments on account, should you try to recover them, if there are outstanding liabilities. Whilst we do not believe that discretion is always applied correctly, it is generally better to avoid this scenario. We believe that this can be done by using the SAFE process.

A SAFE account reference can be obtained by contacting HMRC and making a request. Alternatively, WTT can assist in this matter.

A SAFE account is informal. You can use it to pay a single sum or a series of variable sums at irregular intervals.

Does This Mean That WTT Are Less Confident Of “Winning”?

Not at all. Our view on whether we will eventually succeed in proving that the tax liability rests with employers and not you, has not changed. Interest charges have however changed.

We therefore consider it prudent at this stage to explain the increases and what they may mean in order to give you’re the opportunity (but not the obligation) to take whatever steps you consider necessary. There is no requirement or legal incentive for you to make payments on account if these are beyond you.

How Much Should You Pay?

The short answer is a balance between what your maximum tax liability could be and what you can afford. Only you can make that call. We repeat that there is no obligation to make any payment at all.

The maximum (worst case) liability we can calculate for you if you wish (although we do charge for this).